CHOICE STEER PRICE vs BREAKEVEN - Daily Livestock Report

1 Volume 3, Number 212 November 7, 2005. E- Livestock Volume: 11/5 11/4 10/31. LE (E-Live Cattle): 1003 1270 670. GF (E-Feeder Cattle): 0 0 0. HE (E-Lean Hogs): 247 170 187. Market Comments .The economic situation for cattle feeders has improved Livestock market information provided by Steve Meyer and Len Steiner. somewhat in recent months but, on average, they are still running in Distributed courtesy of the Chicago Mercantile Exchange, Inc. the red. The graph at left shows the Livestock Marketing Information Cen- ter's estimates of average Southern Plains feedlot breakevens as well as cash cattle prices. The recent recovery of cash cattle prices has helped CHOICE STEER PRICE vs BREAKEVEN the situation but higher breakevens driven by high-cost feeders still re- sulted in losses of about $5/cwt live last month. Since the beginning of $ Per Cwt Cattle Feeding, S. Plains, Monthly 2004, LMIC estimates that cattle feeders have made money in only 6 of 22.

2 Months. That, of course, followed 2003 which will likely forever be the cattle feeding sector's Field of Dreams ( Is this heaven?) moment. Lower 105 BREAKEVEN costs this year (see Figure 1 on page 2 for data on Kansas feedlot closeouts from Kansas State University) are reducing the red ink 100 but not eliminating it. These kind of losses strike some people (especially STEER those from a non-cattle background) as unnecessary and foolish. Besides, 95 cattle feeders are the ones who chase feeder cattle so hard that they bid PRICE away virtually any chance of profits to start with, right? Well, maybe. 90. The interesting thing about this go-round of upside down cattle is 85 that a much higher proportion of the cattle in feedlots are actually owned by the feedlots. What incentive is there to retain ownership on a calf or 80 BREAKEVEN yearling that will bring more than a calf or yearling has ever brought? In the same vane, how risky is having $700--$900 (or even more) in a calf or 75 yearling when it walks off the truck?

3 The answer are Not much and Very.. 70. If no-one is interested in placing the cattle, feedlot operators 65 Projected have a a two-member CHOICE set: own them or have an empty lot. In that light, the behavior of the past two years makes more sense. If variable 60 BREAKEVEN costs can be covered, then feeders should indeed own the cattle and cover as much of their fixed costs as possible. 55. 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Could they get in the black anytime soon? Perhaps. The avail- ability of Canadian feeder cattle will help blunt the effect of higher heifer retention and beef exports to Japan, while still not a done deal, will resume someday soon? Feed costs are about as low as they will get so much will depend on weather and performance this winter. And remember that Please feel free to forward the Daily Livestock Report to others who you think will benefit from having this information. The DLR is pub- these computations are meant to represent the average.

4 There are some lished Daily by Steve Meyer and Len Steiner, and distributed courtesy of the Chicago Mercantile Exchange. You can subscribe by going to above-average feedlots that are not losing money today and they will do To submit a comment or suggestion, please send an e-mail to: To unsubscribe from the DLR newsletter, go to well when things go right-side-up again. Disclaimer: The Daily Livestock Report is intended solely for informative purposes and is not to be construed, under any circumstances, by All of the CME Lean Hogs and Live Cattle contracts chal- implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is lenged or set contract life highs again today. Even the Dec Lean Hogs obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projec- contract is within $ of the high set back on October 5.

5 The strength in tions of future conditions are attempted. Security futures are not suitable for all customers. Futures and options trading involve risk. Past results are no indication of future performance. Lean Hogs was attributed to fund buying and was a key driver in the cattle pits as well. FI hog and cattle slaughter were slightly lower than expected Copyright (c) 2004 by Chicago Mercantile Exchange Inc. 30 S. Wacker Drive, Chicago, IL 60606. All rights reserved. today, a positive factor for spot-month PRICE action. Daily Livestock Report Volume 3, Number 212 November 7, 2005. Figure 1. KANSAS FEEDLOT CLOSEOUTS. Feeding Costs per Cwt, Heifers $/cwt 65. 63 Avg. 1999/. 61 03. 59. 2004. 57. 55. 53 2005. 51. 49. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec